I love all those imminent American energy independence propaganda stories reported by the corporate media, paid for by the energy industry, and stated as fact by corrupt bought off politicians across the land. The shale oil miracle is the biggest scam in energy history. The boobs spouting about shale oil saving America either have IQs of 75 or are being paid off by Wall Street shysters or the energy industry.

The nitwits spouting this gibberish always ignore the terms RECOVERABLE and ENERGY RETURN ON ENERGY INVESTED. How convenient. The story below blows a gaping hole in the bullshit spouted by these hacks and scam artists. The Monterey Shale Oil deposits were touted as saving America and generating millions of new jobs in California because it contained 67% of the entire country’s oil reserves.

One itsy bitsy problem revealed today – 96% of it is not RECOVERABLE, even with the fracking technology being employed in the Bakkan and Ford shale fields. Instead of 13.7 billion barrels of oil, we’ll be lucky to get 600 million of extremely expensive shale oil, if any at all. OOPS – missed by that much.

The boobs in Congress and in the White House will ignore these facts, just like they ignore how much energy and capital investment is needed to extract shale oil and gas. We get closer and closer to a 1 to 1 EROI. Once we reach that ratio, the game is up folks. Demographics and the depletion of cheap easy to access energy sources are leading to the Long Emergency and slow collapse of our society.

Storylines and propaganda will not change reality. Oil is $103 per barrel. All the talk of energy independence hasn’t changed the fact that you were paying $1.43 per gallon at the start of the Iraq War in 2003 and today you are paying $3.65 per gallon. What do you think you will be paying per gallon in 2020?

U.S. officials cut estimate of recoverable Monterey Shale oil by 96%

By Louis Sahagun

May 21, 2014, 12:00 a.m.

Federal energy authorities have slashed by 96% the estimated amount of recoverable oil buried in California’s vast Monterey Shale deposits, deflating its potential as a national “black gold mine” of petroleum.

Just 600 million barrels of oil can be extracted with existing technology, far below the 13.7 billion barrels once thought recoverable from the jumbled layers of subterranean rock spread across much of Central California, the U.S. Energy Information Administration said.

The new estimate, expected to be released publicly next month, is a blow to the nation’s oil future and to projections that an oil boom would bring as many as 2.8 million new jobs to California and boost tax revenue by $24.6 billion annually.

The Monterey Shale formation contains about two-thirds of the nation’s shale oil reserves. It had been seen as an enormous bonanza, reducing the nation’s need for foreign oil imports through the use of the latest in extraction techniques, including acid treatments, horizontal drilling and fracking.

The energy agency said the earlier estimate of recoverable oil, issued in 2011 by an independent firm under contract with the government, broadly assumed that deposits in the Monterey Shale formation were as easily recoverable as those found in shale formations elsewhere.

The estimate touched off a speculation boom among oil companies. The new findings seem certain to dampen that enthusiasm.

Kern County in particular has seen a flurry of oil activity since 2011, with most of the test wells drilled by independent exploratory companies. Major oil companies have expressed doubts for years about recovering much of the oil.

The problem lies with the geology of the Monterey Shale, a 1,750-mile formation running down the center of California roughly from Sacramento to the Los Angeles basin and including some coastal regions.

Unlike heavily fracked shale deposits in North Dakota and Texas, which are relatively even and layered like a cake, Monterey Shale has been folded and shattered by seismic activity, with the oil found at deeper strata.

Geologists have long known that the rich deposits existed but they were not thought recoverable until the price of oil rose and the industry developed acidization, which eats away rocks, and fracking, the process of injecting millions of gallons of water laced with sand and chemicals deep underground to crack shale formations.

The new analysis from the Energy Information Administration was based, in part, on a review of the output from wells where the new techniques were used.

“From the information we’ve been able to gather, we’ve not seen evidence that oil extraction in this area is very productive using techniques like fracking,” said John Staub, a petroleum exploration and production analyst who led the energy agency’s research.

“Our oil production estimates combined with a dearth of knowledge about geological differences among the oil fields led to erroneous predictions and estimates,” Staub said.

Compared with oil production from the Bakken Shale in North Dakota and the Eagle Ford Shale in Texas, “the Monterey formation is stagnant,” Staub said. He added that the potential for recovering the oil could rise if new technology is developed.

A spokesman for the oil industry expressed optimism that new techniques will eventually open up the Monterey formation.

“We have a lot of confidence in the intelligence and skill

of our engineers and geologists to find ways to adapt,” said Tupper Hull, spokesman for the Western States Petroleum Assn. “As the technologies change, the production rates could also change dramatically.”

“The smart money is still investing in California oil and gas,” Zierman said.

“The oil is there,” Zierman said. “But this is a tough business.”

Environmental organizations welcomed the news as a turning point in what had been a rush to frack for oil in the Monterey formation.

“The narrative of fracking in the Monterey Shale as necessary for energy independence just had a big hole blown in it,” said Seth B. Shonkoff, executive director of the nonprofit Physicians Scientists & Engineers for Healthy Energy.

J. David Hughes, a geoscientist and spokesman for the nonprofit Post Carbon Institute, said the Monterey formation “was always mythical mother lode puffed up by the oil industry — it never existed.”

Hughes wrote in a report last year that “California should consider its economic and energy future in the absence of an oil production boom from the Monterey Shale.”

The 2011 estimate was done by the Virginia engineering firm Intek Inc.

Christopher Dean, senior associate at Intek, said Tuesday that the firm’s work “was very broad, giving the federal government its first shot at an estimate of recoverable oil in the Monterey Shale. They got more data over time and refined the estimate.”

For California, the analysis throws cold water on economic projections built upon Intek’s projections.

In 2013, a USC analysis, funded in part by the Western States Petroleum Assn., predicted that the Monterey Shale formation could, by 2020, boost California’s gross domestic product by 14%, add $24.6 billion per year in tax revenue and generate 2.8 million new jobs.

15 Comments

Persnickety says:

Actually the game is up at an EROEI of 3:1 or maybe even 4:1. Worse, for reasons Gail has explained, the game is probably up at an EROEI more like 8:1 or 10:1, because the financial system is unlikely to be able to finance exploration and production at those ratios.

I keep hoping that some magical new energy source will ride in from the west and save us.

They only missed the estimate by 96%? Close enough for government work. As if this wasn’t bad enough, Obama is getting ready to wipe out the American coal industry in total. Coal provides close to 60% of our electricity, and something of value that we export. Nope, Obama is going to kill it, which will double or triple already high electricity prices, and put hundreds of thousands coal miners and support staff out of work.

A while ago we had a poster with a PhD in Geology who made quite a good case regarding abiotic oil … oil that is created by the earth’s crust and replenishes itself …. and I really think that fella hit the nail on the head, so stop worrying.

Many don’t even know that gasoline one of, if not the biggest, American export.

But they will still listen to some unhinged pundit reiterating the likes of Pallin, “Drill Here Drill Now” or some other media tool or politician saying, “American Energy Dependence!”

The last 8, or 9, presidents said the same thing.

On February 6, 1974, Secretary of State Henry Kissinger under President Nixon unveiled ‘Project Independence,’ a comprehensive national energy plan to achieve energy independence by the end of the decade. (Never happened)

Gerald Ford 1975 -I have set the following national energy goals to assure that our future is as secure and as productive as our past: First, we must reduce oil imports by 1 million barrels per day by the end of this year and by 2 million barrels per day by the end of 1977. Second, we must end vulnerability to economic disruption by foreign suppliers by 1985. Third, we must develop our energy technology and resources so that the United States has the ability to supply a significant share of the energy needs of the free world by the end of this century.

All this “got oil”, “don’t got oil”, “got coal”, “don’t got coal”, won’t mean doodly-squat in 50 years. Long before that 50 years is up, storm surges, wild and wooly weather of all varieties will have made a good chunk around our sea coasts useless and much current productive farmland will dry up and blow away.

Tropical bugs will invade South to North well up to the 45th parallel bringing crop failures and disease (agricultural and human).

Besides that, in order to arrest our march toward killing ourselves off, the population of the ENTIRE WORLD with all its’ billions of ignorant people must all agree to lower their standard of living, consume less of everything – especially energy – and accept a much smaller environmental footprint than that we display right now. Now what are the odds of that happening? Less than 0%.

The three Horsemen will ride along with their Dogs of War long before we even get started talking about it.

Any debate about energy other than how to reduce the use thereof is an exercise in futility and mouthing worthless noise that will accomplish nothing.

The US shale oil “miracle” has about as much believability left as Jimmy Swaggart. Just today, we learned that the EIA has placed a hefty downward revision on its estimate of the amount of recoverable oil in the #1 shale reserve in the US, the Monterey in California.

As recently as yesterday, the much-publicized Monterey formation accounted for nearly two-thirds of all technically-recoverable US shale oil resources.

But by this morning? The EIA now estimates these reserves to be 96% lower than it previously claimed.

Yes, you read that right: 96% lower. As in only 4% of the original estimate is now thought to be technically-recoverable at today’s prices:

EIA Cuts Monterey Shale Estimates on Extraction Challenges

May 21, 2014

The Energy Information Administration slashed its estimate of recoverable reserves from California’s Monterey Shale by 96 percent, saying oil from the largest U.S. formation will be harder to extract than previously anticipated.

“Not all reserves are created equal,” EIA Administrator Adam Sieminski told reporters at the Financial Times and Energy Intelligence Oil & Gas Summit in New York today. “It just turned out it’s harder to frack that reserve and get it out of the ground.”

The Monterey Shale is now estimated to hold 600 million barrels of recoverable oil, down from a 2012 projection of 13.7 billion barrels, John Staub, a liquid fuels analyst for the EIA, said in a phone interview. A 2013 study by the University of Southern California’s Global Energy Network, funded in part by industry group Western States Petroleum Association, found that developing the state’s oil resources may add as many as 2.8 million jobs and as much as $24.6 billion in tax revenues.

(Source)

From 13.7 billion barrels down to 600 million. Using a little math, that means the hoped for 2.8 million jobs become 112k and the $24.6 billion in tax revenues shrink to $984 million.

The reasons why are no surprise to my readers, as over the years we’ve covered the reasons why the Monterey was likely to be a bust compared to other formations. Those reasons are mainly centered on the fact that underground geology is complex, that each shale formation has its own sets of surprises, and that the geologically-molested (from millennia of tectonic folding and grinding) Monterey formation was very unlikely to yield its treasures as willingly as, say, the Bakken or Eagle Ford.

But even I was surprised by the extent of the downgrade.

This takes the Monterey from one of the world’s largest potential fields to a play that, if all 600 million barrels thought to be there were brought to the surface all at once, would supply the US’ oil needs for a mere 33 days.

Yep. 33 days.

And along with that oil come tremendous water demands, environmental, infrastructure and air pollution damages.

So if you do go for it California, the rest of the country will be your best buddy for a little more than 4 weeks. But don’t keep calling us afterwards, as we’ll be off to the next oil party (if there are any other ones to be had). But know that, sure, we still respect you.

Of course I’m being sarcastic here. But if I lived over or near a shale formation, I would be putting up a hell of a fight to prevent the many long-term damages and airborne pollutants that inevitably accompany such short-lived fracking operations.

At this point, you might be wondering just how the EIA got its estimate so badly wrong. The answer is that the EIA relied on a private firm, one now scraping corporate relations and PR egg off its face:

U.S. officials cut estimate of recoverable Monterey Shale oil by 96%

May 20, 2014

Federal energy authorities have slashed by 96% the estimated amount of recoverable oil buried in California’s vast Monterey Shale deposits, deflating its potential as a national “black gold mine” of petroleum.

Just 600 million barrels of oil can be extracted with existing technology, far below the 13.7 billion barrels once thought recoverable from the jumbled layers of subterranean rock spread across much of Central California, the U.S. Energy Information Administration said.

The new estimate, expected to be released publicly next month, is a blow to the nation’s oil future and to projections that an oil boom would bring as many as 2.8 million new jobs to California and boost tax revenue by $24.6 billion annually.

The 2011 estimate was done by the Virginia engineering firm Intek Inc.

Christopher Dean, senior associate at Intek, said Tuesday that the firm’s work “was very broad, giving the federal government its first shot at an estimate of recoverable oil in the Monterey Shale. They got more data over time and refined the estimate.”

(Source)

Wait a minute. The 2011 California shale oil estimate that launched a flotilla of excited “shale miracle” headlines, led the EIA to publish an estimate of the Monterey at 13.7 billion recoverable barrels, and helped to form a national narrative around potential US “energy independence” was done by a Virginia engineering firm?

Okay, well who are they exactly?

Looking at their website, clearly put together using cheesy stock photos, early Internet font formats, and touting the fact that they’ve been a business “since 1998″ doesn’t quite project the hoped-for aura of gravitas and seasoned competency:

(Source)

Seriously? A clock in an arch? Typing fingers? A woman gesturing in a meeting and a guy on a phone?

I mean, does anyone other than me have a “no lame stock photos” requirement of the businesses they use to generate the data used to justify a major geopolitical energy realignment? It’s the closest thing I have to a hard rule.

Okay, just kidding again….sort of.

At any rate, the bottom line here is that the EIA relied on this firm’s back-of-the-envelope calculations which turned out to be — surprise! — unreliable. And now, Occidental Petroleum is scrambling to get its assets out of the Monterey and deployed somewhere more promising.

The lesson to be learned here is: don’t believe every headline you read. Consider the source, and more importantly — stock photos or not — always question the data.

Price, It’s Always About Price
However, I cannot completely write off the entire 96% as ‘gone’ because the media has left off the most important part, as they always do: the role of price.

Without having access (yet) to the latest well data to know exactly what sort of potential disaster we’re dealing with, the correct way to write-down an oil resource is to say: at today’s oil prices, this asset can yield (or is worth) $X.

At higher prices, it is certainly true that more of the resource will be ‘worth’ going after.

But as you and I know, the price mechanism is just a means of obscuring the most important variable: the net energy that will be returned from a given play. Generally speaking, the higher the price (which is often a function of the energy required to extract), then the less net energy will come from that play.

So anytime we hear that a given play is being ‘written down’, as the Monterey is in rather spectacular fashion, what’s really being said is that the net energy from the play is a lot less than prior and/or existing plays, and will not be useful to us until higher oil prices come along. In the case of the Monterey, much higher prices.

Whether we have an intact, functioning and highly complex economy of the sort necessary to develop and deliver the technology required to prosecute such low-yielding plays is another matter entirely. My best guess as of today is, ‘probably not.’

Conclusion
Today’s write down of the Monterey shale asset is a huge blow to Occidental Petroleum specifically, to California’s energy and employment dreams more broadly, and to the US’s energy dreams at a national level.

This is not surprising at all to anybody following the shale story with a critical eye. We always knew that the best plays were being prosecuted first for obvious reasons; it’s human nature to go after the easy stuff first. And this is especially true for the folks in the oil patch.

The best plays were tapped first, not by some accident of technology or lucky holes plunged into the ground, but because they were cheapest to prosecute. The remaining shale deposits are less rich, more costly to explore, and the profitable pockets much harder to find.

Your main take-away is this: the US has a lot less shale reserves on the books today than it did yesterday. Look for future downward revisions as the other remnant shale plays are poked and prodded and found to be wanting.

Investors need to be wary here too. The hype about shale prospects are wedded to a Wall Street cheap capital machine that is showing clear signs of over-heating:

Shale Drillers Feast on Junk Debt to Stay on Treadmill

Apr 30, 2014

Rice Energy Inc. (RICE), a natural gas producer with risky credit, raised $900 million in three days this month, $150 million more than it originally sought.

Not bad for the Canonsburg, Pennsylvania-based company’s first bond issue after going public in January. Especially since it has lost money three years in a row, has drilled fewer than 50 wells — most named after superheroes and monster trucks — and said it will spend $4.09 for every $1 it earns in 2014.

The U.S. drive for energy independence is backed by a surge in junk-rated borrowing that’s been as vital as the technological breakthroughs that enabled the drilling spree. While the high-yield debt market has doubled in size since the end of 2004, the amount issued by exploration and production companies has grown nine-fold, according to Barclays Plc. That’s what keeps the shale revolution going even as companies spend money faster than they make it.

“There’s a lot of Kool-Aid that’s being drunk now by investors,” Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset Management LLC. “People lose their discipline. They stop doing the math. They stop doing the accounting. They’re just dreaming the dream, and that’s what’s happening with the shale boom.”

(Source)

I guess there’s a little less dreaming going on in the Monterey shale patch this morning.

Not to pick on RICE here, because they are more typical than not, but when you are spending $4 to earn $1, somebody ought to be asking some hard questions. Especially the investors.

More broadly, I have been clearly concerned by the recent reports indicating that the shale operators have been spending far more in CAPEX than they’ve been generating in operating earnings.

That’s a larger subject that I’ve covered in more detail in recent reports, but the summary is this: over the past four years, free cash flow (FCF) has been negative for most of the major shale players.

Which leads us to the really big question: When will all these shale drilling efforts actually generate positive FCF?

In the case of the Monterey, and at today’s prices, the answer looks to be ‘Never.’

bb, I highly doubt the government would be willing to publish data that would be critical of itself unless it was true or even worse than what there saying.

Next Headline:
“Actually, there’s no oil here. Tim the intern had greasy hands from dollar Tuesday at chicken fiesta and we accidently misinterpreted his smugs as positive geological proof for oil on our survey data.”

Stucky says:
A while ago we had a poster with a PhD in Geology who made quite a good case regarding abiotic oil … oil that is created by the earth’s crust and replenishes itself …. and I really think that fella hit the nail on the head, so stop worrying.”